will the real job creator please stand up

May 25, 2012

One of the key buzzwords this election season, much like it was during the last, is ‘job creation.’ The economy is all we ever seem to hear about lately, and politicians are jumping on the ‘job creation’ bandwagon in droves. House Republicans, for example, have a plan to spur job creation called “The House Republican Plan for America’s Job Creators.” As the title indicates, their plan for spurring job creation and economic growth focuses on the ‘creators,’ which unsurprisingly proposes, among other things, lower taxes and fewer regulations for businesses and the wealthy, since they’re the obvious creators (read ‘largest campaign contributors’).

In the conversation about job creation in a predominately consumer-based economy, however, one important aspect often gets overlooked: consumers, which some see as the true job creators. Nick Hanauer, for example, a Seattle-based venture capitalist and one of the early backers of Amazon.com, suggests that consumer demand and spending is ultimately the real source of job creation, and that consumers (particularly middle class consumers) are far more responsible for job creation than capitalists like himself. In his own words from a recent (and controversial) TED talk:

I have started or helped start, dozens of businesses and initially hired lots of people. But if no one could have afforded to buy what we had to sell, my businesses would all have failed and all those jobs would have evaporated.

That’s why I can say with confidence that rich people don’t create jobs, nor do businesses, large or small. What does lead to more employment is a “circle of life” like feedback loop between customers and businesses. And only consumers can set in motion this virtuous cycle of increasing demand and hiring. In this sense, an ordinary middle-class consumer is far more of a job creator than a capitalist like me.

But even if one disagrees with this idea for whatever reason, I think it’s hard to deny that this aspect of the economic feedback loop often gets ignored in the conversation, or at least underemphasized in comparison to the business side of the equation, the mythologized ‘job creators’; and in my opinion, any remotely successful plan to spur job growth can’t afford to ignore working-class consumers in favour of businesses. For all the rhetoric about lowering taxes on the wealthy and drastically cutting social welfare and safety net programs in order to promote growth, the data doesn’t seem to support this as an effective strategy. As Hanauer continues on to argue in the talk:

Anyone who’s ever run a business knows that hiring more people is a capitalists course of last resort, something we do only when increasing customer demand requires it. In this sense, calling ourselves job creators isn’t just inaccurate, it’s disingenuous.

That’s why our current policies are so upside down. When you have a tax system in which most of the exemptions and the lowest rates benefit the richest, all in the name of job creation, all that happens is that the rich get richer.

Since 1980 the share of income for the richest Americans has more than tripled while effective tax rates have declined by close to 50%.

If it were true that lower tax rates and more wealth for the wealthy would lead to more job creation, then today we would be drowning in jobs. And yet unemployment and under-employment is at record highs.

While I don’t think that all of our economic problems can be solved by simply raising taxes on corporations and the wealthy, I do think a critical look at the same ‘trickle-down economics‘ that have failed time and again (e.g., in the 1890s, when they called it ‘the horse and sparrow theory’; ‘Reaganomics’ in the 1980s, which Ross Perot called ‘political voodoo’; etc.) is certainly long overdue.

Giving tax breaks and the like to the wealthy actually allows very little to ‘trickle down’ to the average worker/consumer. The enormous amount of capital currently available isn’t being used to create jobs so much as it’s being hoarded or transformed into even higher record profits for the top 10%. They could use it if they really wanted to. Banks, for example, have plenty of money to lend; they’re simply sitting on it. Same for large multi-national corporations. Whether it’s out of fear of economic instability or whatever, lowering tax rates even more is like begging them to start doing something with their hoards of cash. We shouldn’t be begging; we should be demanding—whether in the form of higher taxes on the wealthy and corporations, or more extreme measures like nationalizing banks in order to provide the much-needed liquidity for the economy.